Many financial institutions have derailed from their primary responsibilities, breached regulatory guidelines and are engaging in anti-economy activities like aiding kidnapping, allowing their platforms to be used for ransom payment, insider abuses and complicit in e-fraud and cybercrimes. ASSISTANT EDITOR, COLLINS NWEZE, reports.
The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, tipped banks as critical elements in the government’s plan to achieve $1 trillion economy in the next seven years.
With banks’ N74 trillion gross assets and N36 trillion loans to key segments of the economy, the CBN chief was right on the economic powers inherent in the banking system.
Unfortunately, the abuse of such powers also comes with negative consequences on national security, businesses and economy.
Recent happenings and investigations have shown that many banks are complicit in the worsening security situation in the country.
Investigations showed that many financials have derailed from their primary responsibilities, breached regulatory guidelines and are engaging in anti-economy activities like aiding kidnapping, allowing their platforms to be used for ransom payment, insider abuses and complicit in e-fraud and cybercrimes.
A report by SB Morgen Intelligence, an Africa-focused geopolitical research, said ransom payments have become the dominant motivation for kidnapping due to Nigeria’s struggling economy, rising inflation and high unemployment rates.
Between July 2022 and June last year, 3,620 people were abducted in 582 kidnap-related incidents in the country, with a reported ransom demand of at least N5 billion and actual ransom payments of N302 million, a large part of funds were paid to the criminals through the financial system. However, this figure could be higher due to underreporting.
Illicit accounts
A former Representative at Interpol in Nigeria and CEO Sheiks and Bishops Limited, Sir Chikwe Udensi, who confirmed the development, said Nigeria loses N350 billion yearly through frauds, cybercrimes and other vices like ransom payment.
He said there are 133 million bank account holders in the country, out of which five million are fake.
He said: “Banks are using stolen Identity Cards (IDs) of dead people to open accounts. The active accounts opened with fake IDs are what kidnappers are using to receive ransom payments and such funds are hardly traced.
“Ransoms are paid into accounts of customers of banks and such funds cannot be traced because they were opened with fake or stolen identity cards.”
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, said some banks’alleged role in money laundering, kidnapping, terrorism financing, illicit drugs transactions are fuelled by their zeal for profit optimisation and competition for market share.
He said illicit financial inflows through financial institutions is the handiwork of compromised professional enablers.
He said: “Banks and designated non-financial institutions are categorised as professional enablers in money laundering, terrorism financing and financing of weapons because of their roles in creating these evils within the society.”
Gwadabe said banks’ thirst for huge deposits from clients have created gaps in undertaking a fit and proffer checks, Know Your Customer (KYC) and Due Diligence in account opening and customer service delivery.
He said the increased deployment and use of technology in financial services delivery have made them vulnerable to the skillful high-tech cyber criminals.
Cases in point
Friends of former federal lawmaker, Tokunbo Afikuyomi, on January 13, this year, lost millions of naira to fraudsters who hacked his WhatsApp number.
Having succeeded in taking control of the use of the app, the e-fraudsters, according to Senator Afikuyomi, sent messages to his contacts, soliciting financial help on his behalf.
Millions of naira was transferred to the account numbers provided by the cybercriminals. When contacted, the bank involved simply said, the transactions were not traceable.
Last month, a former Minister of Communications and Digital Economy, Prof. Isa Ali Ibrahim Pantami, announced that his friend raised N50 million out of the N60 million demanded by kidnappers of the Alhaji Mansoor Al-Kadriyar daughters. One of the victims, Nabeeha Al-Kadriyar, a 400-level student of Biological Science, Ahmadu Bello University (ABU), Zaria, was killed by the bandits before the ransom was paid.
Another account said over N13.6 billion was paid to non-state actors as ransom between June 2011 and July 11, 2022.
He said said every member-nation of Interpol has access to 19 databases used to fight international crimes.
“Kidnapping is a major challenge in Nigeria. Technology is so advanced that even when the mobile phone is switched off, signals can still be detected. This can help in tackling the menace,” he said.
Udensi explained such things happen because of insider abuses and neglect on the part of the financial institutions.
For instance, at least 110 top bank executives and junior staff members have been sacked for fraud- “Reports of Fraud and Forgeries in Nigerian Banks’’ released by the Financial Institutions Training Centre (FITC) between the second quarter of 2021 and that of last year.
The report said of the N81.69 billion involved in fraud cases, N18.01 billion was lost due to insider-related fraud.
Also, the Nigeria Deposit Insurance Corporation (NDIC) report showed that bank customers lost N472 million to Point of Sale (PoS) and mobile fraud in the first quarter of last year. At present, PoS transactions have remained largely untraceable, hence the regularity at which e-fraudsters use the platform to access illicit funds.
Analysts said there are N1.2 trillion monthly transaction volumes in over 2.5 million PoS terminals deployed nationwide by banks, Fintechs and other financial institutions. This makes it cumbersome for regulators to monitor the platforms inflow and outflow transactions.
In a state-by-state analysis, kidnappers in Edo are more likely to demand higher ransoms than in other states, but they get little in return, garnering only N5 million compared with the N650 million demanded.
In contrast, Taraba appears to have paid the most ransom, but the devil is in the details. Of the N130 million kidnappers in the state demanded, just N60 million was paid.
That showed that kidnappers appear more likely to get better ransoms in the Northcentral than in other regions. Nasarawa is largely responsible for this. In the past year, kidnappers narrowed their targets to high-value individuals such as retired government officials and families of politically exposed persons because it is easier to extract maximum ransom with minimal fuss.
On the other hand, ransom payments in the Southsouth, at N20 million – the lowest of the six geopolitical zones – may either have to do with better police rescue operations or kidnap victims keeping a tight lip. Bayelsa, for instance, does not have any report of ransom demands or payments in the period under review.
In its concluding comments, SBM Morgen Intelligence advised: “Efforts to combat kidnapping must be comprehensive, addressing the root causes and consequences alike. Strengthening law enforcement, improving socio-economic conditions, and fostering education are essential to eradicating the economic incentives for kidnappers.
“International cooperation, intelligence-sharing, and stringent legal frameworks can also help to curb cross-border kidnapping networks. Kidnapping is a serious crime that has a significant economic impact. The cost of ransom payments, lost wages, and security measures to prevent kidnapping can be staggering. In addition, the psychological and emotional toll on victims and their families can be devastating.
“The economics of kidnapping are complex, and there is no easy solution to this problem. However, governments, organisations, and communities can work collaboratively to develop holistic solutions and effective strategies to prevent and combat this crime by understanding its economic costs.”
Banks’ failed responsibilities
The Financial Action Task Force (FATF) is an independent inter-governmental body created to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.
Nigeria is a signatory of the FATF recommendations, and directive that banks should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names.
Investigations showed that although CBN policies mandated financial institutions to undertake customer due diligence (CDD) measures when establishing business relations; carrying out occasional transactions, many of the banks are not complying with the directive.
Part of the FATF recommendations is that banks should identify the customer and verify customer’s identity using reliable, independent source documents, data or information.
The lenders are also expected to identify the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is.
Financial institutions are also required by law, to understand the ownership and control structure of the customer, obtain information on the purpose and intended nature of the business relationship and conduct ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship.
That would ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.
“Where the financial institution is unable to comply with the applicable requirements, it should be required not to open the account, commence business relations or perform the transaction; or should be required to terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer,” the FATF stipulated.
These requirements should apply to new customers, although financial institutions should also apply this recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.
Financial institutions should be required to maintain, for at least five years, necessary records on transactions, domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.
Financial institutions should be required to take reasonable measures to determine whether a customer or beneficial owner is a domestic Politically Exposed Person or a person who is or has been entrusted with a prominent function by an international organisation.
“If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU).”
Countries should ensure that competent authorities have responsibility for expeditiously identifying, tracing and initiating actions to freeze and seize criminal property and property of corresponding value.
Views from experts
Former Executive Director, Keystone Bank Limited, Richard Obire, explained that financial institutions in Nigeria are required to report in writing, any transaction, lodgment or transfer of funds in excess of N5 million and N10 million or their equivalent made by an individual and body corporate to the Nigerian Financial Intelligence Unit (NFIU).
The move is backed by Section 10 (1) of the Money Laundering Prohibition Act.
He said information provided in suspicious transactions reports/suspicious activity reports is to assist the NFIU in identifying emerging trends and patterns associated with financial crimes, money laundering and other illegal activities thereby providing vital intelligence to law enforcement agencies.
He said: “Banks are to report suspicious financial transactions and activities to the NFIU, which is to distill intelligence from the data and pass same on to the law enforcement. The law enforcement agents are to proactively use the data to prevent crimes such as kidnappings for ransoms, terrorist activities, e-frauds, etc.”
Obire explained that if the three parties are playing their roles well, we should see less of illicit financial flows and the crimes they drive.
“Oversight authorities and regulators needed to see to it that the three parties are conducting their roles well. Where there are resource gaps, those gaps are filled adequately and expeditiously,” he advised.
Also, the President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka, said tracing kidnapping for ransom payment is always difficult for banks, unless during contact with the lenders, it was discovered that the funds were unusual transactions.
“I advise the regulatory bodies to beam their searchlight on Point of Sale transactions, and make transactions that pass through the payment platform traceable,” he advised.
Ogubunka said the apex bank can also fight financial crimes with policy as seen in the cash withdrawal restriction policy, which makes it difficult for customers to have access to N1 million.
He advised that the KYC principles should be followed by banks and erring operators sanctioned.
“I believe that the managers of the economy should call a meeting to dissect the issue involved and find a lasting solution. People from different segments of the economy should be involved in the summit- security chiefs, tech experts, banks, telcos, among others, should be part of the discourse to find a way out of the quagmire because stakeholders’ inputs will be helpful,” he said.
Besides, the Nigeria Country Representative, European Organisation for Sustainable Development, Jide Akintunde, said it was unfortunate to think that banks were involved in ransom payment because of the ransom funds, somehow, get into the financial institutions.
“It is true that the financial system is not clean enough, but I do not think it is the job of the banks to apprehend kidnappers. I also do not think the banks should be made a scape goat for the collapse of security in the country,” he said.
He said the government also has to start cleaning its tracks, because stolen funds also pass through the financial system, and no bank managing director has ever been arrested.
He called for the implementation of the FATF principles to the letter and ensure that the banks are not victimised.
Akintunde said since a large part of illicit funds are paid in cash, the security intelligence should be able to gather the intelligence.
Akintunde, however, advised the CBN to tighten its rules to ensure that banks sit up.
“When banks are not sanctioned, it becomes difficult for them to sit up. The CBN must have its surveillance system tightened and defaulting banks penalised for them to sit up,” he said.
Cyber-security experts and stakeholders in the financial service sector have, therefore, called for the integration of multiple identity system into a unified system to easily detect and track perpetrators of cybercrime.
At the Information Security Society of Africa – Nigeria (ISSAN) Cybersecurity Roundtable with the theme: “Re-Thinking Corporate Governance Rules on Money Transfers” in Lagos, its President, David Isiavwe, stated the need for operators, law enforcement agencies and financial sector regulators to ensure they are steps ahead of cybercriminals.
Isiavwe, who is also the Chief Compliance Officer of Ecobank Nigeria, noted that fintechs have a critical role to play in the future of financial services, noting that the more they innovate, the more they need to automate the attendant controls and ensure that they are strictly monitored.
The stakeholders also agreed that there was also the urgent need to create effective blacklists of criminals in the financial sector so that when they commit any infraction, they would be blacklisted.
CBN Director, Payment System Management, Musa Jimoh, stressed that it is the responsibility of stakeholders to ensure a robust payment ecosystem and a sound regulatory regime as the apex bank cannot do it alone. He emphasised that banks and fintechs should put adequate measures in place to protect their customers, stressing that it was the only way to embrace and trust the payment system.
“The banks should know the identity of the entity that is conducting transactions. Banks should invest and strengthen their KYC.They should monitor transactions and put adequate measures in place to trigger suspicious transactions.They should continue to educate their customers and create more awareness. It is the obligation of the banks to protect customers who are vulnerable. Banks and Fintech’s should exhibit good market conduct to earn the trust of their customers.” he said.
On the way out, Gwadabe advised banks to operate within their conventional banking business and built their competencies.
He called for enhanced corporate governance with specific delineation between, ownership, regulations and operations.
Additionally, he advocated for more training of staff to put them ahead of the dynamics of money laundering, fraud, kidnapping and illicit drugs deals.
“I further advised banks to be compassionate, interrogate their consciousness in carrying out day to day operations.
There should be increased security surveillance from the Government including adoption of technologies like Geo mapping to trace and track criminal online real time as being practiced in Mexico where they reduced kidnaping to the barest minimum or completely eliminated,” Gwadabe said.
“Also the use of religious and traditional institutions for sensitisation and rebuilding of minds. There is also the need to radically overhaul our educational curriculum from primary level to higher institutions to treasure our local contents rather than relying heavily on externalised values,” he stated.
Conclusively, the FATF advises Nigeria to ensure that designated law enforcement authorities- NFIU, the Economic and Financial Crimes Commission (EFCC), Independent Corrupt Practices Commission (ICPC) have responsibility for money laundering and terrorist financing investigations within the framework of national AML/CFT policies.
At least in all cases related to major proceeds-generating offences, these designated law enforcement authorities should develop a pro-active parallel financial investigation when pursuing money laundering, predicate offences and terrorist financing.
This, it said, should include cases where the associated predicate offence occurs outside their jurisdictions.
“Nigeria should ensure that competent authorities have responsibility for expeditiously identifying, tracing and initiating actions to freeze and seize criminal property and property of corresponding value,” the FATF said.
